The pound was higher against the euro following the release of the latest UK labour market statistics for the period between October and November. However, it remained lower against the dollar as markets have lowered their expectations for an interest rate hike this week.
The data showed that wage growth was stronger than expected, something that suggests inflation will remain higher for longer than the Bank of England had anticipated.
The data has also shown that the end of the government’s job support scheme did not result in higher unemployment, which will further provide the Bank of England with positive news that the UK economy is strong enough to support higher interest rates in the coming year.
The encouraging labour data comes at a time where the UK and the rest of the world is facing widespread concerns about the rise in Covid infections and the spread of the Omicron variant, which might affect the Bank’s decision to raise interest rates any time soon. Markets are now expecting that the Bank’s Monetary Policy meeting on the 16th of December will result in interest rates remaining the same. As Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, pointed out, today’s report “would have been strong enough to convince the MPC to raise Bank Rate at this week’s meeting, if Omicron had not emerged.” However, despite the emergence of Omicron, the economic outlook is positive for the economy and the pound.
Unemployment has fallen again as businesses employed more staff after the end of the furlough scheme in September. The unemployment total fell by 127,000 in the August-October period and pushed the UK jobless rate down to 4.2%. The data shows that the market was strong in autumn, but firms were unable to use the Coronavirus Job Retention Scheme to cover temporarily side-lined staff wages.
The Office for National Statistics also reported that an extra 257,000 people were in payrolled employment in November than the previous month. The number of people working rose by 149,000 and reached to 32.5 million.
Vacancies hit a new record high of 1.219 million in September to November 2021. However, vacancy growth has slowed.
Economists are warning that jobs growth may now be coming to a halt due to the Omicron variant. According to global job site Indeed, “job posting growth may be stalling. As of last Friday, 10th December, postings on Indeed were still 47.3% higher than before the pandemic - but that’s a decline of 0.3% compared to the previous week, on a seasonally adjusted basis. As the Omicron variant takes hold and MPs vote on a new set of Covid restrictions, many sectors that have been doing particularly well this year - from hospitality to high street retail - will be deeply worried that their progress could be abruptly halted.”
Plan B threatens economic recovery
The rise in payroll employment and falling unemployment is positive news for the UK economy and the pound. However, economists have highlighted that 1.2m vacancies remain unfilled, and firms are struggling to hire staff.
The effects of Brexit and the coronavirus pandemic are slowly impacting on the labour market as there are staff shortages which could eventually affect economic activity. Plan B restrictions could also damage the labour market’s recovery especially those sectors affected more severely, such as the hospitality and retail sectors.
Bank of England and interest rate rise
Economists believe that if the Bank of England avoids raising interest rates on the 16th of December, then it will definitely have to raise rates in February, an expectation that will push the pound higher.
The fact that the end of the furlough scheme has not resulted in a surge in unemployment is good news for the Bank, however there are persistent issues, and many have called the government to step in and provide support.
The director of the Institute for Employment Studies (IES), Tony Wilson has said that “despite record vacancies and the tightest labour market in our lifetimes, the number of people out of work and not looking for work is rising” and there is currently almost “one million fewer people in the jobs market than there would have been on pre-crisis trends.” Additionally, he said that with the “prospect of tighter Covid restrictions in the new year, the government needs to be planning now for more support to help people get back into work as well as to protect those jobs that may be at risk in a Plan C lockdown.”
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